Reason Foundation
Policy Brief No. 107
July 2013
Sallie Mae and Uncle Sam:
Cronyism in Higher Education Finance
by Scott Piazza and Victor Nava
Project Director: Anthony Randazzo
INTRODUCTION
THE HISTORY OF SALLIE MAE
In the last decade total student loan debt has grown
nearly fourfold, from roughly $240 billion in 2003
to nearly $1 trillion at the start of 2013.1 Much of the
focus on this growing problem has concentrated on the
increasing cost of higher education, which has been a
significant concern for families, students and universities themselves. This brief looks at another side of the
student loan bubble: the crony capitalism of SLM Corporation—more commonly known as Sallie Mae—and
how it has come to dominate student loan markets.
Congress originally founded Sallie Mae as a government-sponsored enterprise (GSE) designed to serve as a
secondary market for student loans. However, over the
last few decades Sallie Mae has leveraged its lobbying
activities, strong ties with the federal government and
its status as a GSE to emerge as the dominant force in
the student loan industry.
Sallie Mae began life as the Student Loan Marketing Association in 1972. It was designed to serve as a
secondary market for student loans, increasing their
liquidity, and thereby making it more attractive for
investors to finance student lending. The Nixon administration’s stated aim in creating Sallie Mae was to
catalyze private investment in student loans by converting relatively illiquid loans into bonds backed with an
explicit guarantee from the United States Government.
In addition to its government guarantee, Sallie Mae
was able to secure financing from the Federal Financing Bank, allowing it to borrow more money at better
terms than non-GSE financing institutions.2 Another
competitive advantage was that, as a GSE, Sallie Mae
enjoyed lower capital requirements and could operate
at a higher leverage than its competitors. And Sallie
Mae was also exempt from state and local taxes on its
franchise, capital and income.
R e a s o n
F o u n d a t i o n
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This combination of government-conferred benefits enabled Sallie Mae to grow rapidly, transforming
itself from a start-up company to a major financial
institution in only a few years. Sallie Mae’s growth was
rapid even by comparison with the rapidly growing
student loan industry, more than doubling in size every
five years.3 According to the Congressional Budget
Office, by 1991 Sallie Mae held 27% of federally guaranteed student loans, dwarfing its next competitor,
Citibank, which held only 4%.4
Figure 1 shows the growth in Sallie Mae over time
as a GSE. Sallie Mae was able to grow from a company
with $300 million dollars in outstanding obligations in
1975, to a company with over $47 billion in outstanding obligations in 20 years. In order to maintain its
scale and its privileged status, Sallie Mae developed
a close relationship with the federal government, and
became known for its formidable lobbying presence,
especially toward the education committees and subcommittees of Congress.5
As early as 1993 Sallie Mae began investigating
alternatives to its GSE status. The loan giant’s management decided it could not sit and watch increasing
competition from major lenders and the federal government as it faced rising operating costs due to federally imposed mandates.6 Arguing that it had achieved
its mission as a GSE in providing financing and liquidity to the student loan market, Sallie Mae began lobbying for its independence, which it was granted as part
of the Student Loan Marketing Association Reorganization Act of 1996. After a transition period, in December of 2004 the Treasury Department announced the
removal of government sponsorship from Sallie Mae,
transforming the former GSE into a wholly private
company—four years ahead of schedule.7
During the transition phase, and as a private company, Sallie Mae continued the growth it had experienced as a GSE. Sallie Mae’s alliances in Congress
secured the company generous concessions when it
began the process of privatization. This included avoiding an “exit fee,” something discussed as a means of
offsetting the substantial benefits that Sallie Mae had
obtained as a GSE, which would be reflected in the
market power it would now have in the private sector.8
Sallie Mae’s moves to acquire numerous guarantee,
origination and collections companies under a single
corporate banner had fundamentally altered the student loan marketplace and made Sallie Mae the undisputed leviathan of the student loan industry.9
Since the early 1990s Sallie Mae has grown to
become the dominant force in the student loan market
in terms of the holding and origination of federal
Figure 1: Growth of Sallie Mae as a GSE, 1975–1995 (Outstanding Obligations in $Billions)
$50
Outstanding Obligations (in Billions of Dollars)
$45
$40
$35
$30
$25
$20
$15
$10
$5
$0
1975
1980
1985
1990
1995
Source:Thomas H. Stanton, “The Privatization of Sallie Mae and its Consequences,” American Enterprise Institute, June 26, 2007.
Cronyism in Sallie Mae
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student loans. One of the biggest benefits Sallie Mae
enjoyed post privatization was what former SLM CEO
Lawrence Hough described as the ability to acquire
new sources of volume without first needing to seek
the approval of external entities (i.e. federal bureaucracy), as well as the ability to acquire several related
lenders and firms.10 In 2009, flexing its post-privatization muscle, Sallie Mae held or originated nearly $175
billion in Federal Family Education Loan Program
loans (FFELP)—more than Citigroup, Wachovia, Wells
Fargo and JP Morgan Chase combined—by a factor of
four (see Table 1). FFELP loans are federally guaranteed student loans in which the government subsidizes
private lenders in order to keep interest rates on these
loans artificially low.
of the finance industry, including student loans. The
bill extended a provision that made federally guaranteed student loans non-dispensable in bankruptcy to
privately originated student loans. This means that
if students declared bankruptcy, their student loans
could not be absolved. This now made it as difficult for
a student to discharge a private loan as a federal loan.11
Federally guaranteed student loans had been nondischargeable in bankruptcy since 1998, and had strict
guidelines including good faith repayment in one form
or another since 1976. This had generated little controversy since federal student loans offer numerous
borrower protections to help avoid default.12 According to proponents of the law, the expansion of these
non-discharge provisions was designed to curtail abuse
of bankruptcy proceedings to eliminate student debt,
which would help increase the availability of private
capital in student loan markets by decreasing the risk
of loss on student loans issued.13 The changes moved
private student loans into the same category as debt
obtained through fraud, drunk driving and neglected
child support, substantially reducing the debtor protections enjoyed by student borrowers.14
Opponents of the law argued that there was no data
backing up the claim used to justify the increasingly
strict standards governing student loans, namely, that
some students enter into student lending contracts
with no intention of repaying them. Experts have
argued that many restrictions have been introduced
solely on the basis of “anecdotal information,” without
any empirical evidence supporting the claim.15 Instead,
the narrative that students are routinely graduating
from college with debt and immediately declaring
bankruptcy after graduation was pushed by Sallie Mae
and other student lending companies in the hopes that
these measures would even further reduce the risk
shouldered by lenders when issuing student loans.
Sallie Mae alone spent nine million dollars lobbying
Congress between 1999 and 2005 when the bill was
under consideration, including $130,000 in campaign contributions to members of the key committees considering the legislation.16 The upshot was that
Sallie Mae was able to secure a substantial reduction
in debtor protections for student borrowers, thereby
mitigating the student finance industry’s exposure to
risk even further.
Table 1: Largest Federal Family Education Loan
Program Originators and Holders, 2009 in $Billions
Lender
Sallie Mae
Origination
Volume
Holder
Volume
Total
Volume
$20.99
$154.10
$175.09
Citi Student Loans
$5.87
$32.50
$38.37
Wachovia Education Finance Inc.
$5.54
$13.20
$18.74
Wells Fargo Education Financial
$5.15
$14.60
$19.75
Bank of America
$4.92
$10.10
$15.02
JP Morgan Chase
$3.55
$11.10
$14.65
Pittsburgh National Corp (PNC)
$2.66
$5.30
$7.96
U.S. Bank
$2.26
$4.40
$6.66
Discover Bank
$1.73
$1.10
$2.83
EdAmerica
$1.56
$0.90
$2.46
National Education Loan Network
$1.56
$25.30
$26.86
Source: 2009 data from FinAid.org. Accessed May 13, 2013.
SALLIE MAE PLAYING UNCLE SAM
LIKE A FIDDLE
Relying on its friends in Washington, the privatized Sallie Mae continued to enjoy the advantages of
its history as a GSE, and leveraged its extensive political connections to maintain those advantages and to
secure additional government contracts for servicing federal student loan programs. Perhaps the most
significant example of Sallie Mae’s influence peddling
came with the passage of the 2005 Bankruptcy Abuse
Prevention and Consumer Protection Act, a sweeping
bill of regulatory reforms targeting countless aspects
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Cronyism in Sallie Mae
SALLIE MAE’S COLLUSION POSTPRIVATIZATION
code’s student-loan discharge provisions are indicative
that Congress has been bowing to the lender lobby.18
Such behavior reflects “crony capitalism,” the collusion of government with the private sector to provide
economic benefits to a narrow interest group.
In more recent years, Sallie Mae has used its
lobbying power to maneuver around numerous challenges that the company has faced. When the financial
crisis struck, Sallie Mae was a prime beneficiary of the
Ensuring Continued Access to Student Loans Act of
2008 (ECASLA). This act, signed into law by President
Bush in 2008, expanded funding for federal student
loan programs in an attempt to provide additional
liquidity to the student loan finance market. Sallie Mae
supported the initiative, releasing a statement claiming that ECASLA comes at no cost to taxpayers and
provides a comprehensive solution to the credit crunch
facing the student loan market.19
Ironically, the bill sought to achieve this through
the initiation of a loan purchase program in which the
Department of Education would provide a secondary
market for student loans held by private lenders, the
same purpose for which Sallie Mae was created during
the 1970s. This secondary market would help shore up
the availability of private capital in student loan markets, preventing the financial crisis from interrupting
the availability of federally backed but privately originated student loans.20
Cumulatively, Sallie Mae has spent over $40 million
on lobbying and campaign donations since 1997 in an
attempt to maintain itself as the top student loan corporation in the U.S. Since privatization in 2004, Sallie
Mae’s lobbying efforts have greatly expanded. Its lobbying expenditures rose 36% from the end of 2004 through
2006, and 171% through 2008. Since 1997 its average
annual lobbying expenditures exceed $4.2 million.
A 2010 article in the American Bankruptcy Law Journal (ABLJ) found that through its lobbying
operations Sallie Mae has specifically sought to penetrate ‘first-tier’ congressional offices, hire Democrataffiliated lobbying firms to build relationships with
congressional Democrats, and continue to work with
Republicans to combat proposals which challenged the
company’s ability to turn a profit.17 Particularly revealing were Sallie Mae’s efforts against legislation proposed by Senator Dick Durbin which would allow for
the discharge of private student loans in bankruptcy,
a move that would effectively undo the changes made
applicable to student loans in the bankruptcy code as
part of the 2005 Bankruptcy Abuse Prevention and
Consumer Protection Act. The ABLJ article suggests
that the Durbin bill failed because of interest group
capture, noting that the history of the bankruptcy
Figure 2: Sallie Mae Cumulative Lobbying and Campaign Finance Spending
$40,000,000
Campaigns and PACs
$35,000,000
Lobbying
$30,000,000
$25,000,000
$20,000,000
$15,000,000
$10,000,000
$5,000,000
$1997-1998
1999-2000
Cronyism in Sallie Mae
2001-2002
2003-2004
2005-2006
Source: influenceexplorer.com
4
2007-2008
2009-2010
Reason Foundation • www.reason.org
2011-2012
Officials from the company claimed that the legislation
would result in the layoffs of 30% of their workforce, a
key component of their public outreach and grassroots
lobbying efforts.25 Sallie Mae and other lenders also
pushed the narrative that SAFRA was a government
takeover of the student loan industry, despite the fact
that the FFELP program, like the direct loan program
SAFRA sought to expand, was a federal program.26
Sallie Mae developed a counterproposal to the president’s plan, which would have maintained the FFELP
program in a modified form. Essentially, Sallie Mae’s
proposal constituted the permanent institutionalization
of the ECASLA bailout, with some modifications, allowing for the sale of FFELP loans to the Department of
Education, which would contract loan servicing through
the lenders originating the loan, or a competing contractor. The proposal would also have modified the way in
which lending institutions were compensated, so that
lenders no longer had to remit excess borrower payments to the government when the commercial paper
rate plus the special allowance of 1.19 percentage points
dipped below the interest rate charged on FFELP loans,
guaranteeing compensation for lenders. Additionally,
lenders would have the option to retain the rights to service loans sold to the Department of Education, a major
modification from ECASLA provisions under which the
lender lost all servicing rights upon sale of the loan to
the Department of Education.27
The company hired Tony Podesta and Jamie Gorelick, both of whom have deep connections within the
Democratic Party, to lobby for the plan and oppose the
Obama administration’s proposal.28 Although SAFRA
was ultimately signed into law, Sallie Mae’s lobbyists
were able to secure a number of key concessions and
contracts, ensuring Sallie Mae’s viability under the new
framework for federal student loans.
Part of that came in the form of a $50 million
grant to Sallie Mae and other FFELP loan originators
to “retrain and redeploy workers” as a component of
a job retention program.29 Sallie Mae was also one of
four companies selected to service new loans issued
under the Direct Loan Program as well as over $550
billion in loans currently outstanding.30 The expansion of Direct Loan Servicing and increases in private
loan origination have allowed Sallie Mae to achieve
record profits and consistently exceed expectations as
Although Congress had the opportunity to expand
the Direct Loan Program, private lenders including
Sallie Mae pushed for a bailout of the FFELP program
and insulation from market forces which challenged
their profitability. Testifying before Congress, Sallie
Mae Vice-Chairman and Chief Financial Officer Jack
Remondi lobbied for reforms which would allow the
Federal Financing Bank to purchase loans originated
by private lenders, saying that such “budget-neutral
steps” would provide liquidity to the FFELP program
and ensure student access is uninterrupted.21
At the same time, Sallie Mae positioned itself to
win the contract to service much of the newly acquired
debt from ECASLA. Sallie Mae’s lobbying efforts even
included bringing back two thousand jobs it had previously outsourced to overseas operations to enhance the
company’s appeal.22 It paid off, with the company ultimately servicing over 40% of the total volume of loans
purchased by the Treasury under the program.23 Sallie
Mae’s lobbying for ECASLA did not end with the bill’s
passage, however, as the ascent of President Obama
to the White House once again brought student loan
reform to the forefront of the discussion.
President Obama’s election could have been seen
by Sallie Mae as a threat to the status quo, as the
president’s promise to reform the student finance
industry put the company’s profits in danger. President Obama’s proposed reforms, contained within the
Student Aid and Fiscal Responsibility Act (SAFRA),
sought to reform the way the government issues federally backed loans. It would have eliminated the FFELP
program and transitioned all federally guaranteed
loans into an expanded Direct Loan Program. SAFRA
was promoted as a means to achieve savings by ending
subsidies to private lenders who originate federally
backed loans under the FFEL program, which would
then be transferred toward an increase in funding for
the Pell grant program (federal, need-based higher
education grants administered through the Department of Education). Sallie Mae immediately began
preparing to oppose the measure, with the firm’s lobbyists focusing on senators regarded as fiscal conservatives and senators in states that were home to lending
centers with jobs at stake, states including Florida,
Illinois, Nebraska, New York and Pennsylvania, in
order to drum up enough opposition to sink the bill.24
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Cronyism in Sallie Mae
the business continues to grow.31 Despite the relatively
lucrative nature of the new outlook for the student loan
industry, and the job retention money that Sallie Mae
received, the company still eliminated 2,500 jobs that
year.32 The Department of Education disputed Sallie
Mae’s claim that the job cuts were all due to the change
in the law.33 Is this just another example of Sallie Mae
playing Uncle Sam like a fiddle? Or has SAFRA actually
delivered a blow to the student loan giant?
It’s hard to tell. In May 2013 Sallie Mae announced
it was splitting into two separate publicly traded entities.34 One entity would be a legacy company focusing
on collecting on loans it has already issued, including
loans issued in the past through FFELP. This company would hold 95% of Sallie Mae’s current assets.35
The second company would act like a consumer bank,
issuing new loans as well as expanding the traditional
banking services Sallie Mae provides.
Why split? The move is likely in response to the
changing landscape in the student loan industry since
the implementation of SAFRA. But has SAFRA really
crippled Sallie Mae? Not likely, as the company’s profits continue to soar. Rather than crippling Sallie Mae,
SAFRA has just forced the company to restructure the
way it does business. In April of 2013 the company
reported that its first-quarter earnings had more than
tripled from the previous quarter, a sign that the company is not in any serious trouble at the moment.36
Sallie Mae contends that the split provides the
company the best opportunity for future growth. However, it could also be seen as a means of hedging against
damage the company might sustain from the risk of
greater student loan defaults and delinquencies, since
the government is no longer subsidizing Sallie Mae’s
loans through FFELP. But with all the advantages Uncle
Sam has provided Sallie Mae over the years, its new
lending entity is in a good position to maintain dominance in the private student loan market.
THE NEGATIVE EFFECT ON
AMERICANS OF HIGHER EDUCATION
CRONYISM
A well-educated populace has many benefits. But it
does not automatically follow that the federal government should use its powers and taxpayers’ money to
increase access to student loans beyond what would
otherwise be available through private lenders, philanthropists and educational establishments.
And while government subsidies to student loans
have increased demand for higher education, the
supply of higher education has not increased commensurately. As a result, the cost of tuition has risen dramatically. In the last 10 years alone, the tuition costs of
attending a four-year public or private university have
Figure 3: Total Household Debt vs. Student Loan Debt from 2004 to 2012 (Percentage Increase Since 2004)
700
Total Debt (Minus Student Loans)
Student Loan Debt
600
500
400
300
200
100
3
20
10
:Q
1
20
10
:Q
3
20
11
:Q
1
20
11
:Q
3
20
12
:Q
1
20
12
:Q
3
20
13
:
Q
1
:Q
1
20
09
3
09
:Q
20
:Q
Q
1
20
08
Q
3
20
08
:
1
20
07
:
3
Q
07
:Q
20
1
20
06
:
3
Q
06
:Q
20
1
:Q
20
05
:
Q
3
20
05
20
04
:
20
04
:Q
1
0
Source: Quarterly Report on Household Debt and Credit, Federal Reserve Bank of New York, June 2013. http://www.newyorkfed.org/householdcredit
Cronyism in Sallie Mae
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both risen over 60%.37 And as tuition fees have risen,
so has the amount of debt assumed by students.
The recession from 2007-2009 did lead to a historically higher than average increase in enrollment
in higher education, but it’s not likely to have been
a major contributing factor in the rising cost of education over time. In 2009, undergrad enrollment
increased 7% from the previous year—that’s 3% higher
than the 10-year average annual increase. That spike
also hasn’t lasted post recession and cannot explain the
increase in tuition over the last couple decades.
Figure 3 above demonstrates the seriousness of the
student loan debt situation. Since 2004, student loan
debt has grown by 594%. In contrast, over the same
period total household debt (which includes things like
mortgage, auto loan and credit card debt) has grown
by 152%. Again, unlike mortgage, auto loan and credit
card debt, which can go away if you declare bankruptcy,
student loan debt does not. The amount of student loan
debt created, in part because of the relationship between
private lenders and the federal government, is and will
continue to be a significant drag on the economy.
In minutes released from the Federal Reserve’s
Federal Open Market Committee meeting from March
2013, FOMC members expressed concern over the high
level of student debt and the negative effects it could be
having on the economy, mentioning it among the factors limiting increases in aggregate household spending.38 The reason why student loan debt can negatively
effect the economy is because the payments on the
interest and principal of the debt can easily constitute
a substantial portion of one’s personal income—money
that could otherwise be invested elsewhere.
A 2012 Pew Research Center survey found that 19%
of households (1 in 5) owe student loan debt, with the
average balance being $25,682.39 The survey found
that the cohorts bearing the greatest burden of student
loan debt are the young and the poor. Forty percent of
households headed by someone younger than 35 are
holding student loan debt, and student loan debt as
a percentage of household income is greatest among
the lowest one-fifth income group, which bears a 24%
debt-to-income ratio.40 Figure 4 below shows household student debt-to-income ratios for the various
cohorts, which trend downward as household income
starts to rise.
The survey found that every income cohort saw a
rise in the its respective student loan debt-to-income
ratios from 2007, with the greatest increases among the
lowest fifth and highest fifth income groups.41 It makes
sense that households in the lowest one-fifth of income
groups face the highest student loan debt-to-income
Figure 4: Outstanding Student Loan Debt as Percentage of Household Income
30%
25%
20%
15%
10%
5%
0%
Lowest Fifth (less
than $21,044)
Debt to Income Share
Second Fifth
Middle Fifth
Fourth Fifth ($59,624
($21,044 - $36,723) ($36,724 - $59,623)
- $97,585)
24%
10%
12%
7%
80% - 89.9%
($97,586 $146,791)
Richest 10% (greater
than $146,792)
7%
2%
Source: Richard Fry, “Burden Greatest on Young, Poor,” Pew Research Center, September 26, 2012. http://www.pewsocialtrends.org/
files/2012/09/09-26-12-Student_Debt.pdf
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Cronyism in Sallie Mae
CONCLUSION
burden, as this cohort is likely to consist of many recent
grads who are just starting out their careers and haven’t
been able to pay off much of their debt.
The takeaway from Figure 4 should be the illustration
of the uphill climb that new graduates face, and how the
climb is only going to get steeper over time if Sallie Mae
continues its manipulation of the student loan market.
While tuition and student loan debt has been steadily
increasing over time, wages and incomes haven’t. Household income has fallen over 8% since the year 2000.42
While the report finds that those at the upper end of the
income scale are more likely than others to owe student
loan debt, the relative burden is greatest when the purse
strings of a household are the tightest—and the relative
burden is expected to rise in the lowest income cohort
over time despite the fact that that this cohort is less likely
to attend college than the others.43
Finally, the cronyism in higher education finance
has prevented a private sector student loan market
from firmly establishing itself. Figure 5 shows how
federal support for student loans has crowded out true
private supply. Especially following the financial crisis,
federal money has all but killed off the nascent private
market that emerged in the mid-1990s. Today, private
student loans account for less that 2% of the total.
Sallie Mae has used its political influence to build
and maintain its profitability in spite of the financial
crisis and throughout numerous attempts to reform the
industry. It has used this influence recently to secure
massive servicing contracts from the expanded Direct
Loan Program, acquire a multi-billion dollar bailout of
the student loan industry, and to procure the removal
of significant debtor protections from privately issued
student loans, of which the company is the largest
originator.
It will be interesting to see if Sallie Mae’s new lending entity can maintain the dominance over the industry that Sallie Mae has traditionally had now that the
federal government has ended the FFELP program.
Influence peddling has become an integral part of
Sallie Mae’s business model. The resulting situation is
unfair to students and taxpayers alike: students end up
paying higher college tuition fees and are saddled with
more debt; taxpayers are left sitting on a ticking time
bomb of accumulated government-backed debt. When
the student loan bubble bursts and Uncle Sam is called
upon to bail out Sallie Mae, the cost could run into
the billions. What is the solution? Ideally, the federal
Figure 5: Federal Student Loans vs. Private Student Loans (in $2011 Millions)
$120,000
Total Federal Loans
Total Private Sector Non-Federal Loans (data begins 95-96)
$100,000
$80,000
$60,000
$40,000
$20,000
Source: Trends in Student Aid 2012, CollegeBoard, http://trends.collegeboard.org/student-aid.
Cronyism in Sallie Mae
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2
-1
0
11
-1
8
09
-0
6
-0
07
4
05
-0
2
03
-0
0
01
-0
8
99
-9
6
97
-9
4
95
-9
2
-9
93
0
91
-9
8
89
-8
6
87
-8
4
85
-8
2
-8
83
0
81
-8
8
79
-7
6
77
-7
4
75
-7
2
73
-7
71
63
-6
4
$0
government should exit higher education finance altogether. This would not only stop the cronyism rampant
in the system, it would also lay the ground work for
a more robust private sector student loan industry—
with no federal guarantee, no protection against the
bankruptcy of borrowers, and no competition from
the federal government through the expanded Direct
Loan program. Such an industry would likely establish
a vetting process to reduce the risk of default. Most
likely several competing models would emerge. The
result would almost certainly be a reduction in the total
number of students—and consequently a decrease in
the cost of tuition, as colleges compete for a declining
pool of students.
5. Ibid, p. 19.
6. Michael J. Lea, “Privatizing a Government Sponsored Enterprise: Lessons from the Sallie Mae Experience,” Cardiff Economic Consulting, May 31, 2005.
http://fic.wharton.upenn.edu/fic/papers/05/0534.pdf
7. Robert Schroeder, “Sallie Mae Completes Privatization,” Market Watch, December 29, 2004. http://
www.marketwatch.com/story/sallie-mae-completesprivatization
8. “The Privatization of Sallie Mae and Its Consequences,” p. 19
9. Stephen Burd, “In merger of student-loan giants,
Sallie Mae will buy much of USA Group,” The Chroni-­
cle of Higher Education, June 23, 2000.
10. “The Privatization of Sallie Mae and Its Consequences,” p. 39.
11. Silla Brush, “Bankruptcy Bill, Nearing Senate
Passage, Would Make It Harder to Wipe Out Private
Student-Loan Debts,” Chronicle of Higher Education,
March 9, 2005.
12. Brendan Baker, “Deeper Debt, Denial of Discharge,” University of Pennsylvania Journal of Busi-­
ness Law 14:4, July 7, 2012, pp. 1214–1215.
13. Ibid, p. 1215.
14. Ibid, p. 1224.
15. Robert Siegel, “2005 Law Made Student Loans
More Lucrative,” NPR, April 24, 2007. http://www.
npr.org/templates/story/story.php?storyId=9803213
16. Benjamin Miller and Stephen Burd, “Sallie
Mae’s Plan of Attack,” New America Foundation, July
10, 2007.
17. Rafael Pardo and Michelle Lacy, “The Real
Student Loan Scandal: Undue Hardship Discharge
Litigation,” American Bankruptcy Law Journal, p.
180. http://html.documation.com/cds/ncbj2010/
pdfs/014_2.pdf
18. Ibid.
19. “Sallie Mae supports congressional action to
protect access to federal student loans,” SLM Corp,
April 30, 2008. http://markets.financialcontent.com/
mi.newsob/news/read/5341222/sallie_mae_supports_congressional_action_to_protect_access_to_
federal_student_loans
20. Jason Delisle, “Student Loan Purchase Programs Under the Ensuring Continued Access to Student Loans Act of 2008,” New America Foundation,
ABOUT THE AUTHORS
Victor Nava is a research assistant at Reason
Foundation, where his work focuses on crony capitalism, financial regulation and monetary policy. Victor
is also participating in the 2012–2013 Koch Associate Program. His work has appeared on Reason.org
and RealClearMarkets.com, as well as in the Orange County Register and Reason Foundation’s 2013
Annual Privatization Report. He previously worked on
monetary policy and regulatory issues as an intern at
Reason Foundation and the Cato Institute. Victor holds
a B.A. with a double major in Economics and Philosophy from Florida International University.
Scott Piazza was a research and polling intern at
Reason Foundation in 2012. He has a B.A. in political science from Villanova University and is currently
studying for an M.A. in Political Science at George
Mason University.
ENDNOTES
1. Quarterly Report on Household Debt and Credit, Federal Reserve Bank of New York, June 2013.
http://www.newyorkfed.org/householdcredit/index.
html
2. Thomas Stanton, “The Privatization of Sallie Mae
and Its Consequences,” American Enterprise Institute,
June 26, 2007, p. 7.
3. Ibid, p. 7.
4. Ibid. pp. 9-10.
Reason Foundation • www.reason.org
9
Cronyism in Sallie Mae
December 2009.
21. “Testimony of John F. (Jack) Remondi Before
the U.S. Senate Committee on Banking, Housing, and
Urban affairs,” Hearing on the Impact of Turmoil
in the Credit Markets on the Availability of Student
Loans, Tuesday, Apr. 15, 2008.
22. “Sallie Mae To Bring 2,000 Jobs Back to U.S,”
Student Lending Analytics, April 07, 2009.
23. “ACS and Sallie Mae Top Services For 2008-09
ECASLA Financing Programs…But ACS Borrowers To
Be Transferred,” Student Lending Analytics, January
7, 2010.
24. Eric Lichtblau, “Lobbying Imperils Overhaul
of Student Loans,” The New York Times, February 4,
2010.
25. Maryann Dreas, “Private lenders focus on jobs
in student loan fight,” The Hill, November 30, 2009.
26. Congress Approves Obama’s overhaul of Student Loans,” Reuters, March 25, 2010.
27. Ben Miller, “Higher Ed Watch Exclusive: Sallie
Mae’s Alternative Student Lending Plan,” The Higher Ed Watch Blog at The New America Foundation, April
15, 2009.
28. David M. Herszenhorn, “Plan to Change Student Lending Sets Up a fight,” The New York Times,
April 12, 2009.
29. “U.S. Department of Education Awards $19
Million to Retain Jobs; Funds Help Workers Transition Under SAFRA Loan Reforms,” U.S. Department of
Education, October 1, 2010.
30. Daniel Luzer, “Title IV Student Loan Management/Servicing,” Federal Business Opportunities,
June 17, 2009.
31. Sarah Mulholland, “Sallie Mae Profit Rises
45% on gains from Repurchasing its Corporate Debt,”
Bloomberg, Jan 19, 2011; “Sallie Mae Profit Beats
estimates as New Loans Surge,” MoneyNews, April 18,
2012
32. Eileen AJ Connelly, “Sallie Mae Job CUTS:
2,500 Jobs Slashed After New Student Loan Law,”
Huffington Post, April 22, 2010. http://www.huffingtonpost.com/2010/04/22/sallie-mae-job-cuts2500_n_547888.html
33. Ibid.
34. Sarah Mulholland, “Sallie Mae to Split Into Two
Companies as Remondi Named CEO,” Bloomberg,
Cronyism in Sallie Mae
May 29, 2013.
35. Jessica Silver-Greenberg and Catherine
Rampell, “Sallie Mae Will Split Old Loans From New,”
The New York Times: DealBook Blog, May 29, 2013.
http://dealbook.nytimes.com/2013/05/29/sallie-maewill-split-old-loans-from-new/
36. Ibid.
37. Kim Clark and Penelope Wang, “Stop the
Tuition Madness,” CNN Money, September 9, 2011;
“Trends in College Pricing 2012,” College Board,
http://trends.collegeboard.org/sites/default/files/
college-pricing-2012-full-report_0.pdf
38. Matthew Boesler, “Fed Forced to Release
Minutes Early After Leak—Some FOMC Members
think QE Ends Soon,” Business Insider, April 10, 2013.
http://www.businessinsider.com/fomc-minutesmarch-2013-4
39. Richard Fry, “Burden Greatest on Young,
Poor,” Pew Research Center, September 26, 2012.
http://www.pewsocialtrends.org/files/2012/09/0926-12-Student_Debt.pdf
40. Ibid, p. 11.
41. Ibid, p. 11.
42. Catherine Rampell, “Median Household
Income Down 7.3% Since Start of Recession,” The New York Times, http://economix.blogs.nytimes.
com/2013/03/28/median-household-income-down7-3-since-start-of-recession/
43. Fry, “Burden Greatest on Young, Poor.”
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